The basis for the update to the law expanding tax credit points to returning residents is Aliyah absorbtion, returning quality human capital to Israel and encouraging investors with potential financial capital to make the State of Israel their center of life, by way of targeting them to make Aliyah and invest in the development of Israel’s Economic Resilience.

The main points of the revised law are:

1. Comparing the status of those who return to Israel after ceasing to be a resident of Israel for a period of at least 10 years (veteran returning resident) to the status of an Oleh Chadash for income generated outside of Israel.

2. expanding the exemption on income tax to new olim and veteran returning residents to include all income derived outside of Israel, including assets purchased after aliyah or return to Israel, for a period of 10 years from the date they become a resident of Israel.

3. Exemption of reporting income from outside Israel for a period of 10 years.

4. The changing of the definition of a foreign company or foreign controlled company (as defined by section 5/5 of the tax order) will not count olim chadashim or returning residents prior to the elapse of 10 years from the date they become Israeli residents.

5. Extending the minimum of required time outside of Israel that bestows the right to tax exemptions for a regular returning resident form 3 years to 6 years.

6. Extending the scope of tax exemptions given to regular returning residents to include income from qualifying securities. The rest of the exemptions to regular returning residents remain without change.

7. The definition of "foreign resident" has been revised in order to provide certainty as to the question of date of detachment of Israeli residency.

  Definitions

1. Israeli residents for the first time (oleh chadash) – someone who was never an israeli resident in the past.

2. Veteran returning residents – someone who returns to Israel and becomes an Israeli resident after having been a foreign resident for a minimum period of 10 consecutive years.

3.Regular returning resident – someone who returns to Israel and becomes an Israeli resident after having been a foreign resident for a minimum period of 6 consecutive years.

4. Adaptation year – An oleh chadash or veteran returning resident can continue to be considered a foreign resident for a period of one year from the date of their arrival in Israel, before becoming an Israeli resident.  In order to invoke the adaption year you will need to notify the Ministry of immigration within 90 days of arrival in Israel.

The full explanations of determination of return dates, the application of the law, the consequences of the adaptation year, as well as examples and
 Q & A can be found on the Tax Authority’s website: www.mof.gov.il/taxes

Disclaimer note: The above is general information only. In any case the wording of the law is the determining factor.

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Moshe Egel-Tal, CSPP
Founder and CEO, Israpay   "making payroll simple"

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